Joshua P. Davis and Robert H. Lande on ‘Restoring the Legitimacy of Private Antitrust Enforcement’ in A Report to the 45th President of the United States (American Antitrust Institute’s Transition Report on Competition Policy), Chapter 6, page 219

This report, which can be found here, argues against the increasingly prevalent view that class actions are little more than legalised blackmail, and that class action lawyers are ambulance chasers rather than private attorneys general. The paper submits that there is no systematic empirical support for the view that frivolous antitrust litigation is a serious problem, and present a defence of the benefits of private antitrust enforcement.

The paper is structured as follows:

A first section argues that private antitrust cases are a critical component of effective antitrust enforcement.

Government cannot be expected to do all or even most of the necessary competition enforcement. In addition to budgetary constraints, there are a number of reasons for this – including “undue fear of losing cases; lack of awareness of industry conditions; overly suspicious views about complaints by ‘losers’ that they were in fact victims of anticompetitive behavior; higher turnover among government attorneys; and the unfortunate, but undeniable, reality that government enforcement (or nonenforcement) decisions are, at times, politically motivated.”

In the US, Congress intended private parties to play a central role in enforcing the Sherman Act, and sought to encourage this by awarding treble damages, mandatory attorneys’ fees and costs to prevailing victims. Furthermore, private cases are virtually the only way for victims of anticompetitive behaviour to be compensated. It also ensures deterrence, as a significant number of private cases do not follow from public enforcement and the amount of damages awarded significantly exceed the amount of fines imposed by public authorities. A particularly important tool in this respect is class actions (i.e. opt out collective redress mechanisms). Class actions permit citizens to combine their limited resources to achieve a more powerful litigation posture. Accordingly, courts have repeatedly found antitrust claims to be particularly well suited for class actions.

A second section argues that current levels of private enforcement is not excessive.

Critics maintain that private antitrust enforcement in the United States is excessive, that it leads to over-deterrence, and that it promotes widespread frivolous antitrust litigation. The authors argue that these are myths.

As regards claims of excessive private enforcement, the number of new private federal antitrust cases has declined significantly during the last 30 years. The number of cases filed peaked in 1977 at 1611, dropped steadily in the 1980s, and has increased modestly to an average of 760 cases per year since 2008. This number amounts to 0.26% of the total number of civil cases filed in U.S. federal district courts in 2014.

As regards claims of over-deterrence, there is no evidence of it occurring. A recent AAI study found that only a small number of claimants receive compensation for loss, let alone treble damages; instead, most claimants are significantly undercompensated. Indeed, despite treble damages being the remedy set forth in law, the current level of damages – even for blatant price fixing – is quite insufficient to fully compensate victims of anticompetitive behaviour. This scenario of under-deterrence is not corrected by public enforcement: a recent study demonstrates that the combined level of current United States cartel sanctions – the total of private and public remedies – is only 9% to 21% as large as it should be to optimally protect potential victims of cartelisation.

Lastly, critics maintain that frivolous antitrust litigation is common, that it often forces businesses to incur expensive and abusive discovery, and that it allows class action lawyers to extort settlements of meritless claims. However, the reality is that while frivolous antitrust claims are sometimes brought, there is simply no empirical or theoretical support for the critics’ overblown claims that antitrust class actions are systematically meritless.

Section III advances a number of recommendations for the President.

These recommendations include advocacy to the public and courts on the benefits of private enforcement, loosening the standards that filter which damages claims are allowed to proceed to trial, allowing prejudgment interest to be imposed, and preventing the misuse of doctrines regarding the admissibility of expert evidence. Furthermore, class actions should be promoted in tandem with an extension of the right to claim damages by indirect purchasers.

Comment:

This is obviously a piece of advocacy, but it is objective and written by authors who are reputed authorities in the field. It provides a good overview of arguments against private competition enforcement, and of possible replies.

Somewhat surprisingly, the authors do not address one important reason why private enforcement has faced strong headwinds in the US: criticisms of (excessive) private enforcement have led to the adoption of substantive competition doctrines that make it extremely hard to establish antitrust infringements other than hard-core cartels. These substantive doctrines, which impose high standards of proof of anticompetitive effects, often combine with the procedural obstacles the authors identify, and with the inherent ambiguity of post-Chicago economic theories of harm, to create a context where bringing successful claims is difficult. The result is that private (and public) claims of antitrust infringements become harder to bring. For example, plaintiffs won a favourable judicial ruling on section 2 (i.e. unilateral conduct) claims in just two percent of all cases between 2000 and 2008 (see this paper by the FTC).